Think twice before writing out a credit card cheque

By Emma Lunn

Want to increase your debt load -- and
stress level -- quickly? Try using a credit card cheque, thinly disguised as a
quick, easy way to get cash, but at a much higher cost.

Credit card cheques are a paper form of
your plastic. They are sometimes offered by banks as a convenience to customers
in case they can't pay by card. But think twice before using them.

What
are credit card cheques?
Credit card cheques look like normal blank cheques but are used to draw funds from
your credit card, instead of from your bank account. In the past, credit card
companies and banks often sent unsolicited cheques to their customers. However,
in July 2009 the government
announced a ban on lenders sending the cheques unless the customer
specifically asked for them.

The
risks of credit card cheques
Credit card cheques are seen as controversial for several key reasons.

They are an expensive way to borrow:
Credit card cheques are treated as cash
advances by issuers and incur the same fees. This means you could be
charged a handling fee of as high as 2.5% of the sum you spend with the
cheque. So if you wrote a cheque for £1,000, the fee will be £25.

What's more, issuers often charge a higher interest rate for cash advances
(and, thus, credit card cheques) than they do for regular purchases. That
means you'll get hit with an extra-high interest rate for every month you
leave the debt you incurred from credit card cheques unpaid.

They have no grace period:
Credit card cheques don't come with the interest-free period normal
purchases have. With normal credit card use, can enjoy a grace period of between
45 and 59 days before the charges start accruing interest. But this isn't
the case if you write a credit card cheque; you'll be charged interest
from day one.

They have fewer consumer
protections: Credit card
cheques do not offer the same level of protection under Section 75 of the Consume Credit Act.

Normally when
you buy something costing between £100 and £30,000 using a credit card, you can
make a claim against the issuer if goods fail to arrive, are damaged or faulty,
or don't meet their description. If you buy something using a credit card
cheque, however, you aren't covered in the same way.

Is
it ever OK to use credit card cheques?Despite the downsides, credit card
cheques can provide you with flexibility in unexpected circumstances.

"Some people find that they're a useful
option for certain situations where a credit card can not ordinarily be used --
for example to pay another person, retailer or service provider who doesn't
have credit card accepting facilities, like an emergency plumber," says Neil
Aitken, spokesman for the UK Cards
Association.

Yet Aitken is quick to point out that borrowers
thinking of writing a credit card cheque should familiarise themselves with the
charges that apply first. Credit card cheques will come with their own version
of the "summary box" that is now included on all credit card statements. This
is where you can educate yourself with the aforementioned fees and interest rates.

If, after weighing up the pros and cons,
you think you need credit card cheques, you must request them directly from
your card issuer. You will receive a maximum of three credit card cheques per
request and can use them like normal cheques to draw on funds up to your
existing credit limit.

However, customers should note that
their banks may no longer even issue credit card cheques. RBS dropped them in Sept.
2006, and MBNA did so as well in March 2010.

No matter your issuer, you should take care
of any unused credit card cheques in your possession to protect yourself from
fraud. Destroy or shred them if if you have no plans to use them -- never just throw
them away.